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Payroll tax cut will boost costs of new mortgages

WASHINGTON – Who is paying for the two-month extension of the payroll tax cut working its way through Congress? The cost is being dropped in the laps of most people who buy homes or refinance beginning next year.

The typical person who buys a $200,000 home or refinances that amount starting on Jan. 1 would have to pay roughly $17 more a month for their mortgage, thanks to a fee increase included in the payroll tax cut bill that the Senate passed Saturday. The White House said the fee increases would be phased in gradually.

The House of Representatives on Tuesday rejected the Senate version, putting the legislation in limbo.

The legislation provides a two-month extension of a payroll tax cut and long-term unemployment benefits that would otherwise expire on Jan. 1. It would also delay for two months a cut in Medicare reimbursements for doctors that is scheduled to take effect on New Year’s Day. Two more months of the Social Security tax cut amounts to a savings of about $165 for a worker making $50,000 a year.

To cover its $33 billion price tag, the measure increases the fee that the government-backed mortgage giants, Fannie Mae and Freddie Mac, charge to insure home mortgages. That fee, which Senate aides said currently averages around 0.3 percentage point, would rise by 0.1 percentage point under the bill. The increase will also apply to people whose mortgages are backed by the Federal Housing Administration, which typically serves lower-income and first-time buyers.

The higher fee would not apply to people who currently have mortgages unless they refinance beginning next year.

Because of the weak housing market and the huge numbers of foreclosures in the last few years, private insurers have not competed strongly for business with Fannie and Freddie, which have the backing of the federal government. As a result, about 9 in 10 new home mortgages are backed by Fannie, Freddie and the FHA.

President Barack Obama and many congressional Democrats and Republicans want to curb Fannie’s and Freddie’s dominance in the mortgage market. Obama earlier this year proposed raising the mortgage guarantee fees they charge as one way to do that.

The ethics committee determines whether House members violated standards of conduct, including a virtual ban on gifts. The committee also can refer cases to the Justice Department for a criminal investigation.

It was previously revealed that Sen. Kent Conrad, D-N.D., and Chris Dodd, D-Conn., while still a senator, had received VIP loans from Countrywide. Both said they did not know they were getting unique deals, and Dodd maintained he received no preferential treatment.

Others named as recipients of the VIP program were James Johnson, former head of Fannie Mae who later stepped down as an adviser to Barack Obama’s first presidential campaign, and Franklin Raines, who also headed Fannie Mae. Still other “friends” included retired athletes, a judge, a congressional aide and a newspaper executive.

The Senate’s ethics committee looked at the Dodd and Conrad cases and cleared them of wrongdoing but warned that they should have exercised better judgment.

The committee said the senators should have questioned why they were in the VIP program, because it should have raised red flags.

The Securities and Exchange Commission in October 2010 said that Mozilo would pay a $22.5 million penalty to settle charges that he and two other former Countrywide executives misled investors as the subprime mortgage crisis began. Mozilo also was banned from ever again serving as an officer or director of a publicly traded company.

He also agreed to pay another $45 million to settle other violations for a total settlement of $67.5 million that was to be returned to investors who were harmed.

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